Accept the limitations of quantification exercises. Management should focus on identifying and mitigating risks that alone or in combination could cause a bank to fail.
Operations Risk has become a buzzword among bankers and regulators lately. Unfortunately, repackaging mainstream management duties as a discrete discipline could do more harm than good.
Lending is a holistic business it requires broad thinking about the impact of credit decisions. A culture of discipline is critical. Banks cultures today are overdue for an overhaul.
Accounting rules require banks to drain reserves when loan losses are low and build them up when problems abound, amplifying booms and busts. Allowing a long-run view of losses in setting reserves would improve financial stability.
Spending several million dollars to beef up risk management processes would be an easy decision if it saved hundreds of millions in deposit assessments each year. Also, Camels should become Carmels.
Investors in search of yield are supporting a return to more aggressive, higher-risk transactions. Banks need the discipline of fixed underwriting standards to prevent mindless herding.
Restricting the use of Fannie Mae and Freddie Mac securities in computing the LCR may raise mortgage costs and negatively impact banks' ability to manage liquidity risk.
An effective bail-in regime increases the government's ability to impose losses on debtholders and a lower probability of systemic support could increase bank funding costs.
